A fractional share is a less than one full share of equity. This type of share is from the result of stock splits, dividend reinvestment plans, or corporate actions. Most likely, fractional shares are not available from the stock market. They are difficult to sell, especially when they have value to investors. These shares are often coming from dividend reinvestment plans (DRIP). DRIP is a plan where a dividend-offering corporation or brokerage firm lets investors use dividend payouts. The purpose is to buy more of the same shares. The amount of DRIP does not limit itself when it comes to whole shares. Because the amount of DRIP reflects the purchase of more shares.
Fractional shares could also happen due to capital gain reinvestment and dollar-cost averaging programs. Apparently, stock splits do not always manifest in the number of shares. Meaning, if 3 or 2 stock split, they would create three shares for every two shares that investor has. Therefore, when an investor has an odd number of shares, he or she will end up with fractional shares after the stock split. It is like, three shares mean 4½, five would be 7½, and the like. Another cause of fractional shares are mergers and acquisitions. Mergers and acquisition could create these shares because two companies combine new common stock. They combine them using a predetermined ratio.
For shareholders, the ratio could result in fractional shares. Some brokerage firms would split whole shares intentionally. This is in order for the fractional shares able to be sold to clients. However, this kind of shared division does not happen anywhere. High-priced stocks like Alphabet, Amazon and Google often experience fractional shares.
